HCL Tech Q3 Results Preview: Revenue Growth Seen Better Than Peers, May Cut Guidance; To Announce Dividends

Shiv Nadar-backed HCL Technologies will be in focus on Friday ahead of its Q3 earnings. This IT firm is expected to perform better than its peers TCS, Infosys, and Wipro, making it attractive in the sector. However, experts believe that HCL may trim its FY24 guidance in constant currency revenue growth with organic services guidance, but maintain its EBIT margins outlook. Apart from this, HCL will also announce an interim dividend for the fiscal.

Ahead of Q3 results, HCL Tech shares traded lower on Thursday. HCL shares ended at Rs 1,485.75 apiece, down by 0.40% with a market cap of Rs 4,03,182.79 crore.

As per the regulatory filing, on January 12, HCL Tech's board of directors will consider the fourth interim dividend for FY24. Further, the company said the record date for determining the entitlement of shareholders for payment of the aforesaid interim dividend shall be January 20, 2024, subject to the approval of the interim dividend by the Board of Directors. So far, in FY24, HCL Tech paid dividends up to 2000% amounting to Rs 40 per share to its shareholders.

What To Expect From HCL Tech In Q3FY24?

Equirus Securities:

We expect US$ revenue growth of 5.3% qoq (CC: +5.2%). We expect c.28.6% qoq increase in P&P sales given seasonal strength with expected CC growth of 2.7% qoq in services business (organic: +1.7% CC). EBIT margins are expected to improve by 61bps qoq led by expected cost efficiencies, seasonal strength in high-margin P&P business and net currency benefits to be partly compensated by wage hikes, furloughs and large deal ramp-up cost. We expect HCLT to cut its FY24E CC US$ sales growth guidance to 4.3-5.3% (organic 3.3-4.3% growth guidance) with organic services growth guidance of 3.8-4.8% in CC terms but reiterate its FY24E EBIT margin guidance of 18-19%. We expect a new business order book of c.US$2bn in 3Q.

Key things to look for: Demand outlook for ER&D services, P&P, business application, IMS and digital services in 4QFY24E/FY24E/FY25E. Impact from ongoing macro issues on HCLT growth/margin outlook or on its clients, if any. Any update on the acquisition strategy in the medium term, capital allocation policy and deal pipeline/wins?

KR Choksey:

HCL Tech is expected to have a YoY revenue growth of 7.1% and a sequential growth of 7.3% for Q3FY24E. The commencement of the Verizon contract on November 1st, along with the ongoing recovery in the ERDS business, will further drive growth for this quarter. The EBIT is expected to increase by 1.6% on a YoY basis and by 7.7% sequentially, while the EBIT margin is expected to decrease by 101 bps YoY and increase by 8 bps QoQ due to positive seasonality in Products and Platforms business. We anticipate a 3.2% YoY increase in net profit and a 10.3% increase on a QoQ basis.

Key Parameters: 1) Key deal wins 2) Focus on Gen AI and cloud computing 3) Demand trends in ERD space 4) Talent acquisition.

DOLAT Capital:

Expect growth of 4.3% in CC terms QoQ led by a ramp-up in P&P and 100bps contribution from ASAP acq. OPM to decline by 34bps due to wage hike. Key Monitorable: 1) Improvement in large deal-wins data if any, 2) Maintain FY24 guidance (Rev. $: 5-6%, OPM: 18-19%) & 3) Outlook on discretionary spend & CY24 client budget.

During the September 2023 quarter, HCL Tech posted net income of Rs 3,832 crore, up by 8.4% QoQ and 9.8% YoY, while EBIT stood at Rs 4,934 crore, rising by 10.6% sequentially and 11.5% YoY. Revenue in rupee terms gained by 1.4% QoQ and 8% YoY, while constant currency revenue growth stood at 1% QoQ and 3.4% YoY. HCL Tech's dollar revenue stood at $3,225 million, up 0.8% QoQ and 4.6% YoY.

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